ABSTRACT
Purpose: This study aims to examine the impact of COVID-19 public health restrictions on audit fees and audit delay at the auditor local office level. Design/methodology/approach: The authors take advantage of the availability of the state-by-state lockdown data to measure the degree of public health restrictions in auditor office locations. Using multivariate regression analysis, this study empirically investigates the impact of the length of lockdown in auditors' office locations on audit fees and audit delay. The authors also examine whether office-level characteristics (i.e. office size and office-level client importance) moderate the association between the length of statewide lockdown and both audit fees and audit delay. Findings: The authors find that a longer lockdown in auditors' office locations is associated with higher audit fees and longer audit delay. The increase in audit fees and audit delay due to lockdown is higher for clients of larger local offices than those of smaller offices. In contrast, the positive impact of lockdown on audit fees and audit delay is less for more economically significant clients of an auditor office than that for less significant clients. Smaller clients are more likely to bear the higher cost of audits and experience longer audit delay during the pandemic. Originality/value: The results suggest that COVID-19 restrictions have forced auditors to change the nature, scope and timing of their tests, resulting in higher audit fees and longer delays in completing audit engagements. Beyond the main effect of lockdowns on audit fees and audit delay, the study finds evidence of the moderating effect of auditor office size and office-level client importance, providing some insights on how auditor local offices cope with COVID-19 restrictions. © 2023, Emerald Publishing Limited.
ABSTRACT
Purpose: The purpose of this study is to examine the impact of the 2020 COVID-19 lockdown on the audit fees and audit delay of audit client firms located in 52 countries and audit firm offices located in 40 countries. Design/methodology/approach: Using archival audit data from Audit Analytics in the fiscal year 2020, this study examines the impact of the length of COVID-19 lockdown and other public health restrictions, measured by the stringency index (Hale et al., 2021), on audit fees and audit delay using a multivariate regression analysis. Findings: Based on a sample of 2,726 US firms and 718 non-US firms from 51 different countries outside the USA and audit firm offices in 40 countries during the fiscal year 2020, the authors find that the COVID-19 lockdown and public health restrictions increase audit fees and audit delay. However, non-US firms experience longer audit delay because of the lockdown than their US counterparts. In addition, longer lockdown and greater restrictions increase the audit fees and audit delay of non-US firms with high audit risk at a greater rate than those of US firms with high audit risk. Practical implications: The results of this study suggest that auditors increase audit fees and have longer audit delay when facing more COVID-19 restrictions. Increased audit fees and audit delay are likely to result from higher perceived audit risk and, consequently, additional audit effort to design new procedures, train staff to use the new procedures and implement them amid the pandemic restrictions. The impact of COVID lockdown and restrictions on audit fees and audit delay are more pronounced for non-US firms with greater audit risk. The results of this study suggest that audit firms should quickly adapt to the evolving audit, risk and financial landscape created by the pandemic. Originality/value: Using archival audit data and large sample size, this study provides the first empirical evidence of the impact of lockdown and public health restrictions during the first wave of COVID-19 outbreak on audit processes as measured with audit fees and audit delay. © 2022, Emerald Publishing Limited.